Law:

Section:

Section 28(i) of the Income-tax Act, 1961 (Corresponding to section 10(1) of the Indian Income-tax Act, 1922) - Business income - Chargeable as - Assessment year 1951-52 - Whether if a person revalues his goods and shows a higher value for them in his books, he cannot be considered as having sold those goods and made profits therefrom nor can a person by handing over his goods to a partnership of which he is a partner that as his share of capital be considered as having sold goods to partnership - Held, yes - Whether in such circumstances there being no sale, no question of making any profit from such transactions arises - Held, yes FACTS A joint venture being run by two companies for purchase and sale of machinery from the disposal department of Assam was taken over by the assessee-company and another company 'P' and the stock of the disposal machinery remaining unsold were thereafter divided equally between them. Both of them having each received machinery valued at Rs. 2,06,372 as its individual share, inflated the value by Rs. 4 lakhs in their respective account books for 1949-50, an equivalent sum having been credited to a capital reserve account. During the accounting period relevant to the assessment year 1951-52, the assessee and 'P' formed a partnership firm in which each had one-half share and transferred their respective share of machinery at the book value of Rs. 6,06,372 each to the new firm. On 1-4-1950, counter debit and credit entries were made in the respective books. No depreciation was allowed either on the original cost or on the appreciated value of such machinery in the assessment year 1950-51 nor during the year under consideration. The assessee contended that the aforesaid sum of Rs. 4,00,000 could not be treated as its profits on the ground, inter alia (i) that it had never dealt in the purchase and sale of machinery either before or after; (2) that the capital appreciation by Rs. 4 lakhs was made in the financial year 1949-50, which was not the relevant accounting year for the purpose of assessment for the year in question; and (3) that the disposal machinery were acquired mainly for the purpose of executing their own contracts, and…

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